Insurance

Insurance: Who Needs it?

What type of insurance makes sense for you?

En español | During these trying economic times, shopping for insurance isn't anyone's idea of fun. Hispanics, however, seem especially averse. According to census data and industry insiders, Latinos are the most uninsured and underinsured group in the nation. For instance, nearly one third of the more than 40 million people in the United States without health insurance are Latino, but Latinos are only 15 percent of the population. For many, it's due to tight budgets, language challenges, and cultural biases.

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"If you come from a country with a national health program, you may not realize that in the United States, without proper health insurance you could find yourself with enormous medical bills," says Leonor McCall-Rodriguez, president of One Voice Insurance Services, in California.

Andre Urena, CEO of the Latin American Agents Association, says that similar cultural biases lead many Latinos to skimp on life and homeowners insurance too. "Those from cultures of strong family ties and countries with little material wealth simply don't see insurance as a priority."

But having the right insurance in the right amounts should be a financial priority, experts say. Below, find out if you need it and, if so, how much is enough.

Health Insurance

Do you need it? Ten out of 10 doctors agree: Yes. With healthcare costs soaring ever higher and many employers not paying their traditional share, underinsured households are risking financial ruin. Half of all personal bankruptcies are due to medical bills.

How much is enough?"You don't just need a health insurance plan; it has to be a quality plan," says McCall-Rodriguez, who reports that policies of questionable value are flooding the market, advertised everywhere. "You want a major carrier," she says. "And you want to ensure that all serious procedures are covered."

Ask enough questions. Research deductibles and copayments. (Don't know what those terms mean? See the web link "Choosing a Medigap Policy," below.) Find out which drugs are covered. Inquire about emergency care coverage. Ask your current doctors if they participate in the plan.

Tips: "You also need to know how to use the plan," adds McCall-Rodriguez. Preventive care, such as colonoscopies and vaccinations, are covered 100 percent by many plans. Checkups can be covered even before deductibles are met.

If you're 65 or about to turn 65, you may want to buy Medigap insurance to supplement Medicare. You can also call Medicare and speak to a counselor at 800-633-4227.

Do you need it? If you own a home, yes. A home—even after the recent market woes—makes up such a large percentage of most families' net worth that not insuring it and its contents is a big mistake.

How much is enough? You probably already have homeowners insurance—getting a mortgage without it is generally impossible—but you may be underinsured. "Many homeowners buy a policy and then let it renew year after year. Meanwhile, their home value may have appreciated greatly," says agent Andre Urena.

"Your home should be insured for an amount somewhere between what it would cost to build a new, similar home—its 'replacement cost'—and the current market value of your property," Urena says.

You also need to assess your valuables. They might not be covered unless your insurance company knows about them, says Cathy Pareto, CFP, president of Cathy Pareto & Associates, a financial planning firm in Coral Gables, Florida.

Tips:Photograph or videotape the inside of your home, cataloging possessions. Keep documentation in a safe place. If a fire destroys your home or you are robbed, you'll need that proof to collect on insurance. Receipts also help. When shopping for policies, get several quotes. And be aware that a typical homeowners policy does not cover damage caused by floods, earthquakes, water-line breaks, termites, or mold, which require additional insurance.

Auto Insurance

Do you need it? You bet. Turn your steering wheel the wrong way and you may be liable for all sorts of damages.

How much is enough? Each state sets a minimum, but that typically isn't enough. In California, for example, the minimum is 15/30/5, meaning that your carrier would pay $15,000 for bodily injury to a single person, $30,000 for injury to all people involved, and $5,000 for property damage.

Tips: Consider exceeding the minimum—by how much will depend on your state's minimums, your personal assets, and how much you have to protect. Auto insurance companies reward older people with clean driving records. These drivers can get the best rates because they're experienced, often own safer cars, and—if retired—tend to drive less, says Urena.

If you've had the same auto insurance for a number of years, it may be time for a cost comparison to see if you're getting the best deal. If you take AARP's Driver Safety Program, you may receive an additional discount. Go to www.aarp.org/families/driver_safety or call 800-227-7669.

Renters Insurance

Do you need it? If you rent and have household goods and furnishings of value, yes.

Renters often don’t think about insurance—until it’s too late. A survey by Allstate Insurance found that 60 percent of renters don’t have it, even though the U.S. Department of Justice reports that renters are statistically more likely to be robbed than homeowners. Should your rented home be burglarized or catch fire, your landlord’s insurance won’t do you a lick of good. Renters insurance will. It also can provide liability protection should someone be injured while visiting.

How much is enough? The home or apartment’s value isn’t important to the renter; its contents are. So you’ll need a good tally of your belongings’ value and of your financial exposure should you get sued.

Tips: Renters insurance generally covers each valuable up to a certain point. If you own items such as expensive jewelry, furs, or a rare coin collection, you may need to purchase a rider.

Life insurance, which comes in many types and sizes, isn’t for everyone.

Do you need it? If you have dependents—such as young children or a non-working spouse who would not be able to support themselves if you died—life insurance can be crucial. Otherwise, probably not.

How much is enough? If we’re talking about term life insurance—the kind that remains in force for say, 10 years, or 20 years—you need enough so that if you die, your family could get by. “As a very rough rule, you should carry life insurance to the tune of eight to 10 times your annual income,” says Cathy Pareto, CFP, president of Cathy Pareto & Associates, a financial planning firm in Coral Gables, Florida.

The other kind of life insurance—permanent life insurance—is a more complicated product that combines a death benefit with money you can tap while still alive. “Permanent life insurance is sold heavily in Latino communities as a conservative investment, but it typically isn’t the best investment in town,” says Pareto. “Permanent life insurance [which includes whole life and universal life policies] tends to be an expensive way to invest. You might be better off with lower-cost term insurance and then investing your money elsewhere,” she says.

Tips:Whether you buy term or permanent, it pays to shop around. Premiums can vary substantially.

Long-Term Care Insurance

With the average cost for a single day in a nursing home now hovering at about $200—an expense usually not covered by health insurance or Medicaid—even a short-term stay could obliterate an average family’s finances. Long-term care (LTC) insurance is designed to pay for nursing-home care, or perhaps a home-health aide, should you find yourself in need. Government figures tell us that about 70 percent of people over age 65 will require some form of long-term care during their lifetime, and that the average need for services spans three years.

Do you need it? LTC insurance is a wonderful thing to have, but you must weigh the benefits against their high cost. The best candidates tend to be in their 50s and have enough money to pay the premiums. “Saving for retirement should come first, and LTC insurance after that,” says financial planner Pareto.

How much is enough? Purchased at age 55, a plan that would pay $150 a day, inflation-adjusted, for up to three years of care might run you $1,100 or so a year in premiums. Purchased at age 65, that same plan might cost $3,000 or so a year. Given these prices, you don’t want to buy more than you need. How much you need, says Pareto, can vary greatly depending on where you live. Use this online calculator to find out what the average cost of care in your area. Factor in other potential sources of income such as Social Security, pension, and investment income in determining your need.

Tips: Look very closely at each policy’s list of “activities of daily living” (ADL)—which determine how bad your condition must be before your policy kicks in—the waiting period, and the time that your benefits will last. It’s best to have inflation adjustment built in, especially if you’re buying the plan at a younger age. If you’re healthy, ask for a good-health discount, which might save you 10 percent off your premiums.

For Hispanics in particular, who often see caring for their elders as a natural part of family life, Pareto suggests paying special attention to the part of the policy that discusses home-care reimbursements. And if you think that you may want to return to your home country some day, look for a policy that will pay you a lump sum that you can take with you. Such a policy would be called a “cash” or “cash-based” policy.

It’s called umbrella insurance because it covers the kind of litigious rain that may soak you despite the protection afforded by your homeowners and auto policies. We’re talking about comprehensive personal liability insurance. Say you’re sued for slander or defamation of character. Or you accidentally plow your car into a shiny limousine and find that your auto policy just won’t cover the enormous damages.

Umbrella insurance supplements your other policies and kicks in only when their limits are exhausted. It isn’t terribly expensive—perhaps $250 a year for a million dollars of added coverage—and it’s a good idea for anyone with substantial unprotected assets, Pareto says. Generally $1 million is the minimum coverage for an umbrella policy. But if you’re very rich and very nervous, you can get coverage up to many millions. Umbrella insurance will not cover professional liability, only personal.

Cancer & Heart Disease/Stroke Insurance

Yes, you can buy cancer insurance. You can buy heart disease/stroke insurance, too. There’s nothing wrong with such plans, but be aware of their limitations, says Leonor McCall-Rodriguez, president and founder of One Voice Insurance Services in Redondo Beach, California. “These plans generally pay you a certain chunk of cash, up to thousands of dollars, should you be diagnosed with a specific disease and need treatment. They are not health insurance and can’t take the place of comprehensive coverage,” she says.

Such policies never cover pre-existing cancer or heart disease. And some policies will deny coverage if you are later found to have had the disease at the time of purchase— even if you weren’t aware that you had it. Premiums will vary according to your age, state, health history, and whether or not you smoke.

Always consult with a professional to determine what insurance plans and/or investments are appropriate for you.

Final note: Always consult with a professional when considering insurance. In addition, you can check the financial health of an insurance company by contacting your state insurance department or by using the financial information tools on the National Association of Insurance Commissioners (NAIC) website.